Supply Chain Blog

Today I am getting ready to do business in my nameless dysfunctional FMCG business. For “FMCG” you can substitute ANY business sector you wish.

I pull on my tough walking boots that will do very well at hiking and climbing and dealing with any water hazards. A full body suit made from flexible Kevlar with all the usual macho combat style zips, loops and pockets plus the necessary reinforced seat padding. A pair of padded gloves which could also be used for keeping goal in football. Low weight but high impact crash helmet plus visor and chin guard.

That’s the equipment sorted and now for the necessary consumable materials I need to carry. This includes 5 litres of cooking oil, 5 kg of small but sharp pins and at least 5kg of male bovine manure. Necessary reusable equipment includes a grappling hook, rope ladder and megaphone. On the IT front I have my laptop – must think about one of those tablets; less weight and made for an easier climb. The mail function of the laptop includes a direct wireless link that automatically forwards email delivery and read receipts directly to an offline hard drive stored in a fireproof cabinet.

Yes, I am ready to do business. I am ready for Silo & Obstructional Priorities (S&OP).

These departmental silos are very deep and surrounded by heavily fortified defences. Using the grappling hook I am able to secure a pulley to the top of the wall and hoist up the rope ladder. The climb is tough with such a lot to carry yet slowly but surely I reach the top without alerting any of the people with whom I work – “colleagues” is not really an appropriate descriptor.

Once stablised at the top of the silo I make my move. In quick succession I pour over the cooking oil, scatter the pins and widely disperse the male bovine manure. Almost within the same second I press “send” on my laptop and a buck-passing message speeds its way through the LAN. With only seconds to spare I use the megaphone to warn those in the silo of what is coming yet still have enough time to store the delivery receipt in the fire proof cabinet and close the PC so nobody can do the same to me.

Job done! Backside well and truly protected and a deeply satisfied feeling flows through me as I think of the chaos in the adjacent departments’ silo. “I feel good, de de de de de de de, I knew that I would!”

Sounds familiar? While this might exaggerate the situation it is a fact some or all of these behaviours and tactics are seen in many companies day after day and month after month. When you operate in such deep silos the only guaranteed business result is failure.

If recognise you are operating in a Silo & Obstructional Priorities environment then you need to break the silos down before you can implement the real S&OP and start climbing the path to success.

The London Olympic Games 2012 are getting very close. The Olympic flame is on a tour of the UK before it finally (and hopefully on time) reaches the Olympic stadium to light the cauldron to mark the start of the games. As the flame has to pass through northern England there is a high risk of the flame being extinguished by torrential rains but let us assume the logistics work and it gets to the right place at the right time.

Over 14,000 competitors from nearly 200 countries have been getting up ridiculously early to sweat and train at whatever sport they excel. That is a huge number of really fit people who are focused on being in peak condition for an event that might last less than 10 seconds or several hours. Taking the 100m sprint as an example; the top sprinters will have 4 opportunities to perform. A collective window of 40 seconds to reflect all that money, time and effort you have expended to qualify and perform to the best of your ability. What if you stumble or don’t hear the starting gun or worse still, you get disqualified?

All that planning and careful preparation to get yourself to the semi-final of the competition only to be disqualified for being a little twitchy waiting for the starting pistol to crack. Hey, don’t worry. There will be another chance for you in 4 years time…

You are not there to perform in front of millions and millions of people around the world. Nobody will see you perform in the final and instead of your stock rising and attracting more lucrative sponsorship deals you will be remembered as “that poor bloke with the twitch”.

While all this Olympic activity is taking place is your physical stock rising as we approach the half-way point in the year? The global economy seems permanently stuck in “weak and unpredictable” mode with no obvious way out. Imagine you are a yellow Pac-Man nibbling away at the dots and then getting stuck in a dead end. What next, nowhere to go, panic! Despite this, many CEOs will be under extreme pressure to “make the numbers”. How exactly?

There is a limit to how much stock can you push into your trading channels and this includes International Key Accounts. Coercing a Distributor to take more and more stock is an easy option but it is an unsustainable action that damages your business in the long run. At some stage a brave CEO has to say enough is enough and start a period of controlled destocking despite the effect this will have on top and bottom line. You know you are doing it so stop deluding yourself and HQ and do something!

You may believe that excess stock means you will never be out of stock or off the shelves but this is not the case. The available stock will inevitably be unbalanced and just when you expect your long planned relaunch to fly out of the blocks and hit the shelf you twitch and realise you have 9 months stock of the old product to move out of Distributors first.

What a disappointment. A waste of money, time and effort, i.e. an Olympic gold medal-sized goof!

We wanted to prosper But falling sales cause me pain Trying and failing A key relaunch yet results the same So very disappointing Not looking good however hard I try Makes me a little ill

Targets are missed and you know why It means nothing to me It means nothing to me Oh, S&OP

Just can’t believe it Falling shares, what every month brings Forecast is appalling Supply’s not right, we stock the wrong things No sign of consensus Slight chance of success and we know why It’s not in existence

Targets are missed and you know why It means nothing to me It means nothing to me Oh, S&OP

Ok, I think it is fairly clear I am a big fan of S&OP. In companies without structure and process this is a way to establish a solid operational framework in a business and this does not actually cost a lot of money or need expensive or complicated IT. Even in more organised companies the S&OP discipline will enhance data and information flow and timeliness. Placing the best information in front of the right people at the right time will bring success.

Let us look at important requirements in some individual S&OP elements before considering the most important.

NPD/Product Change Review: What is coming down the innovation pipeline? Are the development and supply networks on time? When can the business expect the new product or adjusted product to be available?

Demand Review: What does the market want? What is being pulled off the shelves and not pushed into reluctant distributors or outlets? What can really be sold and not “what I need to sell to get my bonus”.

Supply Review: When compared against the demand signal, what is available? What is in transit and available to promise? What quantities are free to sell? What extra stocks above forecast can be made available?

Financial Review:Sales and Supply have a plan. How does this convert to top and bottom line performance? Is this in line with the company budget? Gaps are identified.

Pre S&OP meeting: Now it is time for all the different functions to bring their best information to the same table and thrash out a consensus plan for proposal to the Board S&OP meeting – Sales & Operational Planning. There may be gaps and this team has to propose options to fill those volume/value gaps for consideration by the top team.

Board S&OP meeting:No delegation in attendance. The senior team must receive the Pre-S&OP plan as a key part of the monthly business management meeting. Rarely will the Pre-S&OP proposal go through without need for debate. The top team has to decide on suitable initiatives to close any gaps and give the ok for resources to be deployed. The entire business then works to deliver the plan and start the process once again and again and again.

So what is the most important element here? All are certainly vital to any business wanting to get its skus onto the shelves for consumers to buy. However, if the demand signal is poor then the action you take will seldom be successful even if you work extremely hard. No, we are not looking for nor expect 100% forecast accuracy but any gross inaccuracy here turns the relationship between sales and the rest of the business into something like a pair of trousers flapping on a washing line in a force 10 gale – complete chaos and difficult to bring back under control.

What you really want your business S&OP to look like is a well oiled zip fastener that brings everyone and everything together smoothly and in time towards the same agreed objective.Is your business a pair of flapping trousers or a zip?

If you don’t agree on what is expected between two parties before you start a relationship then anything but success is likely.

You buy a new car and you get a contract that tells you what is covered by the guarantee and for how long in time or in distance travelled. From your side you will be expected to pay the same people to periodically maintain the equipment at peak condition.

Travelling by air? You buy a ticket to Bucuresti and you know when and where it will take off and land you and how much baggage you can take. There are rules in place for delayed take off and excess and lost baggage. You might not like these rules but that is what you have agreed to by investing in the ticket. (Before you say it, I know certain airlines stretch the boundaries here yet people still fly on them!)

While it may not be as popular as it used to be, marriage is still perhaps the most widely used Service Level Agreement (SLA) in the world. The names of the two parties are made very clear to a number of witnesses and depending on your brand of religion there follows a list of statements you have to agree to or the marriage ceremony does not continue. You even get a certificate which is in effect a contract or your SLA. Of course, this does not go down the detail of who does the washing up or who gets up at 3am to feed the baby but it does set out clear expectations.

Should the husband run off with the woman for the chip shop then a divorce is highly likely. Think of the arguments about who gets to keep Eric the hamster if there is a parting of ways. Alternatively, you could use one of those “pre-nuptial” agreements favoured by plastic Hollywood-types who think a long relationship is several months in their world so far away from reality.

In all cases, it reflects “you scratch my back and I scratch yours” or “you stab me in the back and I take you to court”.

Despite SLAs being a vital part of daily lives why do FMCG. Brewing, Pharmaceutical companies fail to have the same in place for their suppliers, IKA/TT customers and internal departments within the S&OP framework? Such an approach holds people accountable for the service they provide and at the same time making the penalties clear in the event of failure.

SLAs do not have to be a lengthy tome of text but should contain enough information for both parties to be 100% clear about what is expected from the relationship. Include some relevant and why not stretching KPIs and you have the basis of a relationship that may flourish rather than end up in the divorce courts.

No relationship in business or in private life is perfect but why not start out by writing down what level of service you are going to provide to each other?